The FHA Commissioner cautioned against further increases of the down payment requirement at a subcommittee meeting earlier this month. There is already a list of proposed changes to the FHA loans, designed to shore up the agency’s cash reserves, but some were pushing for an increase of the minimum down payment from the current 3.5% to 5%.

Rep. Scott Garrett (R-NJ) introduced a bill to raise this down payment last October. The bill would have to be sent to the floor and voted on before this increase would happen.

Commissioner David H. Stevens stated that this would eliminate 300,000 new buyers from the market, which would be a 40% drop. The administration “determined after extensive evaluation that such a proposal would adversely impact the housing market recovery,” Stevens said.

Raising the down payment from 3.5 to 5% would give the FHA a $500 million boost to the FHA’s cash reserves. But the already planned changes will already provide $4.1 billion. (Down payments will be higher for those with lower credit scores.)

NAR agrees with keeping down payments low. “As the leading advocate for housing issues, NAR believes that one of the best ways Congress can help strengthen FHA is to quickly consider and pass legislation that would make current loan limits permanent,” President Charles McMillan said. “It’s important to note that higher balance FHA loans perform better than lower balance ones. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund.”

Read More:

Washington Post

Associated Press

DSNews.com

Related...

• February 16, 2010 -- Using an FHA Loan? Buy Now Before it Gets Tougher!
• January 22, 2010 -- Breaking News: FHA Announces Changes to Address Risk
• April 13, 2009 -- FHA Mortgage and Refinancing to become more difficult
• June 25, 2008 -- Financing Changes make Buying and Selling more Difficult

Recently we discussed FHA changes (please review them here), but there are some important points to take away from the changes. (The changes include higher MIP up-front, higher credit score needed for a lower downpayment, a cap on seller concessions and more lender reinforcement.)

First of all, the changes in upfront Mortage Insurance Premium to 2.25 percent will matter earliest. Our lender sources have informed us that this change is taking place April 5. The other changes follow this summer, according to the FHA. Translation: more money up-front.

Basically, this means don’t wait. If you’re buying, don’t wait. If you’re selling, don’t wait. The tighter the restrictions, the more difficult the process. Here’s a few things other folks are saying:

• Remember, there’s a cap on the amount of seller concessions at closing (closing costs.) This will not be an issue for some, but for others it will. Depending on the cost of the house, a 3% limit might not be much. But it might make the difference between affording a house or not. This affects buyers and sellers! Sometimes those closing costs can give sellers the opportunity to get the buyer into the home, even if it costs you more in closing costs.
• Not a time for fence sitters, buyers or sellers. Sharon Natarus, my lender, is recommending that buyers don’t wait. (If tax credits weren’t already enough reason to consider buying now.) Sharon says, “we know what we can do today, we don’t know what tomorrow will bring.”
• A huge increase in FHA loans. According to USA Today, FHA loans account for 30% of home buyer loans up from only 3% in 2007. This is a huge difference! It can help us understand why the FHA would be tightening the restrictions. And it’s also important to point out how much less restrictive an FHA loan is than a conventional loan. (One reason they have gained in popularity, along with the new tax credits.) SO, they need to adjust the aspects of the loan to keep a the reserves at a level required by law.
• Watch your credit score. If you’re buying down the road and will be a part of these tighter restrictions, keep your credit score high in order to receive the most relaxed down-payment requirement. (And, a good idea for financing anyway — read our tips.)
• Perspecive: These changes aren’t as drastic as they could have been, according to some. Rumors had been flying around for a while about MAJOR FHA changes. Mortgage pro Justin McHood wrote on one of the big Real Estate Blogs:  ”while it is true that in the future it will make it more expensive for someone to get an FHA loan, my first thoughts after reading it were: It could have been worse.” He went on to say “FHA loans are still gaining momentum as a financing option for many home buyers and I expect that these changes will not slow that down at all,” but will just make it a little more expensive.

So, don’t panic. Like other changes throughout this housing correction — inconvenient, more expensive, more difficult to get approval — but not the end of the world. But, why put yourself in the position to be subject to the new restrictions if you are ready to buy now?

Here’s more about these FHA changes from some other sources. You really should keep reading and talk to people you trust if you have concerns about these changes. More importantly, if you have concerns about qualifying for FHA financing already, DON’T WAIT.

• Dan Green’s The Mortgage Reports blog (One of my trusted contacts.)
• Wall Street Journal
• The New York Times

Related...

• January 22, 2010 -- Breaking News: FHA Announces Changes to Address Risk
• January 19, 2009 -- First time buyer? Attend this event!
• June 25, 2008 -- Financing Changes make Buying and Selling more Difficult
• May 19, 2010 -- Buying a Home Soon? Don’t Buy a Car!

If you are buying or selling your house and bringing cash to the table, you may need to know the appropriate guidelines for using financial gifts. Many of us are fortunate enough to receive money from a parent or other relative in order to buy a house. But you can’t just deposit a huge check into your account and easily use it for a downpayment. Please read through these important guidelines, which come directly from our lender. Basically, you need a solid paper trail.

If the gift funds are verified in the account before you apply for your loan and appear on your statement, you need to prove the funds were a gift. You will need a Gift Letter document from the giver (“blood” relatives/immediate family are the least risky) explaining that you do not need to repay the funds. Your lender may have a Gift Letter form for the gift giver to fill out, or may have guidelines for drafting the letter. Ask your lender.

[The Gift Letter is applicable if the funds appear on your statement. If these funds have been in there a few months and don't appear on a statement, then most likely verification is unnecessary.]

If you are receiving the gift between the application and in time for closing, you will need the same Gift Letter, as well as a few more documents. You will need to prove:

Availability of donor funds by providing ONE of these documents:

• Donor’s bank statement
• Letter from donor’s bank
• Cancelled personal check from donor

Accurate transfer of funds by providing ONE of these:

• Cancelled personal check from donor
• Withdrawal receipt from donor
• Copy of check before it is cashed and evidence from donor’s bank that check cleared
• Wire transfer confirmation showing donor and borrower account information

Receipt of funds by providing ONE of these:

• Borrower’s deposit receipt
• Borrower’s bank statement showing the deposit
• Wire transfer confirmation showing donor and borrower account information.

What if you are depositing many smaller monetary gifts after a wedding? Many newlyweds accumulate a large sum from small gifts that they may be depositing during the homebuying process. You probably won’t be able (or need) to provide all of the above documentation, but the paper trail is important.

Our lender Sharon Natarus says, “What I would suggest, is for the couple to make copies of the gift checks — hopefully you received mostly checks and not as much cash.  [Then] we would have a copy of the wedding invitation to verify the date and the fact that a formal wedding with lots of guests was held.”

Sharon says cash is not as easy, but workable. In theory, your deposits will correspond closely to the date on your invitation, and then you have your paper trail to indicate the wedding as a result of a large deposit. If your wedding happens to be upcoming, and is perhaps between your application and closing on a home, talk to your lender about the best ways to handle wedding gift deposits.

Remember, be able to provide a paper trail for large deposits that will appear in your account, and document as much as you can to prove you are not in debt for those funds.

Other Posts

• January 14, 2008 -- Winter Real Estate Market is BOOMING!
• July 18, 2007 -- 9323 Loveland Madeira Rd., Symmes Twp., OH 45242
• October 22, 2009 -- Cincinnati Market Overview – Hyde Park
• December 18, 2007 -- Cincinnati Riverfront Homes – River House Landing

On Wednesday, a new set of policy changes were announced by the FHA. These are designed to decrease risk and continue to support the market while strengthening capital reserves. The reserves were dipping below a congressionally mandated level. We break down the FHA press release here:

The FHA proposes to take the following steps:

1. Increase the mortgage insurance premium.
2. Update the combination of FICO scores and down payments for new borrowers.
3. Reduce seller concessions from 6 to 3 percent.
4. Implement a series of significant measures aimed at increasing lender enforcement.

1.) Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending.

The first step will be to raise up-front MIP and request legislative authority to increase the maximum MIP the FHA can charge. If the authority is granted, then the FHA wants to shift some of that premium increase from the up-front to the annual MIP — this will allow for the reserves to increase with less impact to the consumer, who will then pay over the life of the loan instead of a larger amount at closing.

2.) Update the combination of FICO scores and down-payments for new borrowers.

This is an impactful part of the changes. New borrows will be required to have a minimum FICO (credit) score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. (This is still more relaxed than a borrow could likely get from a financial institution.) This allows the FHA to better balance its risk but still continue to provide access to borrowers who have shown responsibility. This change will be posted in the Federal Register in February and go into effect early summer.

3.) Reduce allowable seller concessions from 6% to 3%

The current level, 6% allowable seller concessions (a.k.a. closing costs), potentially exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA more in-line with industry standard that exist for seller-paid closing costs.

4.) Increase enforcement on FHA lenders

The FHA wants to put more pressure on lenders to follow the rules. It intends to do this by publicly reporting lender performance rankings on the HUD website to complement currently available Neighborhood Watch data. (This is an operational change to make the information more accessible — it doesn’t require new regulation as this data is already available publicly).

FHA also intends to enhance monitoring of lender performance and lender compliance with FHA guidelines. FHA is also pursuing legislative authority to increase enforcement of the following: require all approve mortgagees to assume liability for all loans they originate and underwrite; permitting HUD maximum flexibility to establish separate ‘areas’ for purposes of review and termination under the Credit Watch initiative — this would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its branches.

The FHA is continuing to review its overall response to market conditions. See the original release from which this information was taken for more detail. Also, consider reviewing the articles below for a further look into these adjustments in the FHA regulations. We’ll be looking at this issue more closely — stay tuned to the blog for more.

Read More:

• U.S. News and World Report
• USA Today
• San Francisco Chronicle
• A Regulatory Issues Brief from NAR

Related...

• June 25, 2008 -- Financing Changes make Buying and Selling more Difficult
• February 16, 2010 -- Using an FHA Loan? Buy Now Before it Gets Tougher!
• April 13, 2009 -- FHA Mortgage and Refinancing to become more difficult
• March 30, 2009 -- Updates on Determining Credit Scores

This is something that comes up a lot with my buying clients. “Why should I use the people you recommend?”

I typically have two types of buyers. People who like having a recommendation from me and choose to use a lender, inspector or other contact I typically work with; and people who become skeptical and choose to find their own, often because they are convinced they might find a “better deal.”

First, buyers must be aware: your agent does not receive any benefit from recommending a professional to you. It’s illegal, unethical, and will not happen, and if you’re working with me I can guarantee the accuracy of this statement. Buyers are required to choose their own partners — I am not going to require you work with a particular individual or company — this is also unethical and illegal for an agent to do.

So, why does a Realtor reccomend a lender or inspector to you?

Every day we work with lenders, inspectors, title companies, or even repairmen or other contractors. We develop a relationship with these partners, and know and trust their work. My job when hired by you is to get you to closing successfully. The best way I can do that is help you assemble a good team.

And because I work with these individuals and companies repeatedly, they provide me with continually good service because they don’t want to lose the business that I often send their way. And the reason I keep recommending the same people is because they continually provide this good service and continue to help me get my buyers to closing successfully.

We’ll discuss lenders aa an example, which is an important selection. The lender is involved in every step of the closing process, and determines so many factors. When working with lenders I am familiar with, there are certain things I can expect. First of all, I know the lender will work quickly and as efficiently as possible, which matters a lot in this current economic climate. Remember, new appraisal laws and other factors are making your loan take longer to come through.

I can trust that the lender will carefully review your finances and give you the most realistic information regarding your potential for final loan commitment. I know that when you or I contact the lender for information, he or she will respond to all questions in a timely manner. These things can make the difference between closing and not closing on your house!

Many buyers want to ‘rate shop,’ but that may not help you. Rates change by the hour. Any lender can promise you a lower rate, but that doesn’t guarantee you’ll get it. Also, while you may receive a small difference in rate (these differences can be in the tenths of a percentage), you may get no guarantee on service. A rate that is lower by one tenth of a percent does not help you if you are unable to close on your home because of a lender’s slow responses, poor follow up or incomplete review of your qualifications. You will have a relationship with this lender for a long time, good service matters!

If your loan doesn’t come through at the last minute, you will either lose your house or have to find a last-minute loan somewhere else, which could result in unattractive mortgage terms. This happens! My sellers are also affected when a buyer uses an irresponsible lender. A buyer with no loan cannot buy a house!

Lender selection can also affect title company selection. These are the people that prepare your HUD and all final paperwork that closes your sale. Their attentiveness, attention to detail and responsibility also affect your closing.

The bottom line: I don’t recommend people for my benefit — I recommend people for your benefit! Always know that a buyer has the power to choose anyone for their team, and never has to take my recommendations. However, my recommendations come from years of working together on many, many home sales. When choosing your partners, you really must consider your chances of getting to closing smoothly and successfully! And no matter who you choose to work with, I am on your team and have your successful closing as my main goal.

In addition to lenders, other key people I will recommend to you include: Inspectors, Title Companies, Home Owners Insurance, Staging Professionals and Home Warranty companies. Here’s some more blog articles about my contacts. You can ask me any time for a recommendation!

Wells Fargo: One of our Safest Banks
What is a Good Faith Estimate?
Your Credit Score
Your Inspection
Staging your Home
Homeowners’ Insurance
Title Insurance

Other Posts

• July 4, 2010 -- Summer and Pool Safety
• August 2, 2009 -- Shakespeare in the Park
• June 22, 2009 -- 826 Linden Ave., Newport, KY 41071
• October 29, 2009 -- Homebuyer Tax Credit: New Updates

We’ve mentioned before how the appraisal rules are have changed. (If you need to catch up, read this and this.) The highlights are as follows.

- Lenders and third parties are not allowed to have any influential contact with appraisers. For instance, as your Realtor, I can’t call your appraiser and ask when the appraisal is going to be finished.

-Borrowers must have access to a copy of the appraisal within in three days of the closing of the loan (although they may waive right.)

-This means that buyers should not plan to close any sooner than 30 days. Because the lender can only have limited interaction with the appraiser, it prevents them from pushing the appraisal to completion. Basically, everything will take longer.

Before we get frustrated, we have to remember that these new laws are designed to prevent the deceptive lending practices that led to the housing collapse. So, they are designed to protect you, the consumer. But, things take longer now.

Wells Fargo released a chart that breaks down some of the timing.

This all sounds complicated, but there are things you can do to help keep your loan process on track. Because of the finite minimum length of time these things can take, you want to make sure you’re not doing anything that slows down the process. Here are Wells Fargo’s tips on What You Can Do:

• Obtain a credit-checked pre-approval before you start to shop for a home. (Applying in person, instead of over the phone or Internet, may help expedite the process.)
• Upfront and throughout the process, review the timeline and potential impacts with your home mortgage consultant so you can keep your Realtor or Builder informed. It is wise to plan for at least a 30-day close.
• Review the initial disclosure packet you receive. It contains important details about your loan transaction. Make sure to pose any questions to your home mortgage consultant.
• Review the appraisal delivery disclosure and determine whether or not you wish to waive the 3 business-day prior-to-close review period.
• Understand that changes in fees by third parties – such as your settlement agent – could also impact your closing date.
• Understand that the interest rate on your loan impacts the APR. This means that until you lock in your rate, an exact APR cannot be determined. Minimally, plan on locking at least 10 business days prior to the date you wish to close. (The APR is the annual rate that is charged for borrowing, or made by investing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.)
• If rates improve and you decide to re-lock at the lower rate, a re-disclosure of the TIL may not be required.
• Understand that a change in mortgage product could impact your APR and therefore your estimated closing date.

Related...

• June 15, 2009 -- New Appraisal and Lending Regulations
• January 26, 2009 -- Appraisal Controversies

There is so much more involved to getting a mortgage than getting the “Lowest Rate” Here are a few things I do for my valued clients, proving that its about the service provided and the whole package and not only about the rate…

1. I personally like to evaluate a client’s full financial picture. Maybe they should finance 100% and eliminate all of their debt or bits and pieces of it.

2. Should they do one loan at 100% or two loans such as 80/20, pay PMI (Private Mortgage Insurance) or have a higher interest rate and no PMI.

3. Each loan is custom tailored to fit the client’s individual needs today and help them achieved their financial goals.

4. Is the lender a national lender? Wells is a national lender and finances one in every 16 homes throughout the country. Wells is the only AAA rated retail mortgage lender in the country!

5. I am available to help with questions after the closing and throughout the life of the loan. I generally send marketing pieces at least four times throughout the year.

6. Ask for a good faith estimate and compare closing costs!!! Ask for clarification of costs.

7. Can the interest rate be locked and guaranteed?

8. You want to make sure there are no surprises at the closing table! Take recommendations from your Realtor! They work with lenders daily and can recognize red flags!!!

About Sharon

Related...

• January 22, 2010 -- Breaking News: FHA Announces Changes to Address Risk
• October 22, 2008 -- In December, Lenders Will Require Larger Down Payment
• August 13, 2008 -- Home Sales are Key to Economy
• June 25, 2008 -- Financing Changes make Buying and Selling more Difficult